Government Contracts Arbitrator's Disregard of FAR Passthrough Provisions Was Irrational
Monday, February 18, 2019

Arbitrator's Disregard of FAR Passthrough Provisions Was Irrational

By Government Contracts Editorial Staff

The Court of Appeals for the Ninth Circuit affirmed a district court’s order vacating an arbitration award because, by concluding the local Afghanistan subcontractor was not required to comply with the Federal Acquisition Regulation clauses incorporated in the subcontracts, the award was irrational and the arbitrator exceeded his authority. The subcontracts incorporated many FAR clauses, including FAR 52.249-2, Termination for Convenience of the Government, and a clause providing that the subcontractor owed the prime the same obligations that the prime owed the government, as set forth in the incorporated FAR clauses. After the government terminated one of the prime contracts for convenience and the prime notified the subcontractor it was terminating the corresponding subcontract for convenience, the prime rejected the subcontractor’s settlement proposal as unsupported. The prime nevertheless included the subcontractor’s claim in the settlement proposal it submitted to the government, but the government informed the prime it had overpaid the subcontractor and refused to pay any of the subcontractor’s claimed termination costs. The government subsequently terminated the second project, and after the prime refused to pay the subcontractor’s settlement demands, the parties proceeded to arbitration in accordance with both subcontracts. The arbitrator awarded the subcontractor more than $1 million. The district court vacated the award because the arbitrator “voided and reconstructed parts of the [s]ubcontracts based on a belief that [they] did not reflect a ‘true meetings [sic] of the minds.’”

Achieve Desired Result. Because a court’s review of an arbitration award is limited and highly deferential, the question on appeal was whether the arbitrator exceeded his power in finding that the subcontractor was not required to comply with the FAR provisions. Arbitrators exceed their authority when an award is “completely irrational.” In concluding there was no true meeting of the minds when the parties entered the subcontracts, the arbitrator found that, “in view of the fact that the normal business practices and customs of subcontractors in Afghanistan were more ‘primitive’ than those of U.S. subcontractors experienced with … [g]overnment work,” it was not reasonable to expect that Afghanistan subcontractors would be able to conform to the “strict and detailed requirements” of government contracts. The arbitrator also alluded to the subcontractor’s hand-written receipts written in the “native language” and use of dates from the Islamic calendar. However, although the arbitrator could evade the subcontracts’ passthrough provisions based on the parties’ actual past practices, he could not do so based on the rationalization that to enforce the FAR clauses would be unjust. The award was irrational because it directly conflicted with the subcontracts’ FAR-related provisions, without evidence of the parties’ past practices deviating from them, to achieve a desired result. (Aspic Engineering and Construction Co. v. ECC Centcom Constructors LLC, et al., CA-9, 63 CCF ¶81,576).

Back to Top

Interested in submitting an article?

Submit your information to us today!

Learn More